The Economics of Foreign Exchange in Emerging Markets

Abstract

This chapter is to clarify macro issues and suggest main policy tools for emerging countries. Furthermore, financial markets, capital mobility and monetary policy are theoretically discussed. The exchange rate management (that is contractionary devalua- tion and real exchange rate rules) via exchange rate regimes is the purposed subject of this chapter, that is, consideration of open macroeconomic development policies for emerging markets. We take up three issues related to exchange rates in emerging countries for discussion. The first one is the concept and measurement of real exchange rates as well as exchange rate misalignment and its impact upon economic growth. The second topic taken up is the factors that are important in deciding upon the exchange rate regime and the exchange rate determination for emerging markets. Finally the dilemma problem of policy, in the face of sustained capital inflows, is discussed. A key economic feature that differentiates developed and developing countries is the structure of their financial systems. Keywords: